'Sorry about the death': Should Pa. balance its budget off smokers trying to quit?

HARRISBURG -- Vape shops like the Blue Door became fixtures of strip plazas and shopping malls in recent years, situated at the leading edge of a new $3 billion industry.

Here, at one of Pennsylvania's roughly 300 shops, a melange of sweet scents hang in the air as a customer in flip-flops inspects brightly-colored plastic e-cigarettes at the sales counter. In the corner, an aquarium of tropical fish glows neon blue.

Dave Norris, the owner, crouches over his laptop from a low-slung leather couch, his furrowed brow incongruous with the nonchalance of the place. Arrayed across the coffee table in front of him are printouts from the state's 2016-17 budget with notes scrawled in the margins.

"It's ludicrous to think what was a viable business yesterday -- by the stroke of a pen -- is no longer a viable business today," he said, his cheeks flushing red in the blue light.

Every budget creates winners and losers.

This year, no single group lost more than smokers and the businesses that cater to their nicotine habits. They shoulder nearly two-fifths of the new revenue used to balance Pennsylvania's $31.5 billion budget, including a 40 percent e-cigarette tax that Norris sees as the death knell for his business.

The November election meant broader income or sales tax increases were off the table and no one was interested in reliving 2015's protracted budget impasse. Instead, Gov. Tom Wolf and Republican leaders doubled down on "sin taxes": an expansion of gambling, liquor reforms and higher taxes on cigarettes and other tobacco products.

"This is simply the tyranny of the majority," said Rep. Russ Diamond, R-Lebanon County. "For legislators, it's an easy vote. It's a cheap shot at a political constituency that simply doesn't have the numbers to go to the ballot box."

Pennsylvania's great cigarette debate, however, is about more than leaning on a group with no lobbying power. The new taxes reflect lingering doubt about the safety of e-cigarettes, which are seen variously as a way to curb smoking and as a gateway for teen addicts. They also open a thicket of ethical dilemmas about the state's dueling interests in boosting revenue from smokers and improving their health.

And, as if that weren't enough, questions remain about whether "border bleed" and the failure of vape shops undermine a budget swiftly passed before the summer recess last week by the General Assembly.

Why cigarettes?

Cigarette taxes were a mainstay of Pennsylvania's budget decades before the link between smoking and cancer was widely accepted. Since the tax was introduced in 1935 as a temporary revenue generator during the Great Depression, it has become one of the most frequently hiked taxes in the state.

In recent decades, the tax was justified as a useful mechanism to deter smoking. Virtually every public health expert cites the same statistic: Every 10 percent increase in the price per pack leads to a roughly 4 percent decrease in the number of smokers.

"We're simply talking about human behavior," said Kenneth Warner, a health policy professor at the University of Michigan. "It's true for all products."

Of even greater importance, the taxes have a disproportionate impact on young people who have less disposable income to spend on cigarettes. Early intervention is important, advocates say, because the longer a person smokes, the more difficult quitting becomes. According to statistics gathered by the Congressional Budget Office, a 10 percent tax increase leads to a 3-7 percent decrease in smoking among adults. For those under the age of 18, that impact grows to 5-15 percent.

"That's why we're happy with the $1-per-pack increase," said Diane Phillips, the American Cancer Society's director of government affairs in Pennsylvania. "This will prevent a lot of kids from taking up cigarettes."

And the rationale for cigarette taxes goes beyond health. Supporters point to $2 billion in annual Medicaid spending that goes to treat smoking-related illnesses in Pennsylvania. During the recent budget negotiations, a number of groups lobbied for an even steeper $2-per-pack increase.

"Smoking is costing taxpayers and health care policy holders a lot of money and somebody's got to pay for it," said Bill Godshall, executive director of Smokefree Pennsylvania. "I think cigarette smokers should be the ones -- it should be built into the cost of the product."

Of course, none of the tax increases Wolf approved last week were earmarked for anti-smoking campaigns or health care costs.

"Ideally, we'd like to see additional support for tobacco cessation," Phillips said, "but we also knew Pennsylvania was facing a pretty large budget deficit."

Jeff Sheridan, a Wolf spokesman, echoed those deficit concerns and pointed to "widespread support from all sides for an increased tax on cigarettes."

That, Warner said, is the norm.

"Much as we would love to see the revenues go to public health improvements," he said, "it usually just goes to balance the budget."

For the first time, Pennsylvania will tax smokeless and roll-your-own tobacco at a rate of 55 cents per ounce. Interestingly, lawmakers never taxed cigars (although they have taxed cigarillos).

Cigar smokers, who typically don't inhale the smoke they generate, have lower incidents of lung cancer -- although they are still at risk -- but that doesn't explain Pennsylvania's reluctance to tax them. The more likely reason, and one cited by Legislative leaders, rests with the state's cigar wholesalers and the jobs created through the packing and shipping of their products.

Enter the e-cigarette

Norris picked up his first e-cigarette in 2011 and became an immediate convert.

Like many e-cig users, the 48-year-old was drawn by the prospect of a healthier alternative to the cigarettes he'd been smoking since he graduated high school. The battery-powered devices convert liquid nicotine into a vapor that eschews the carbon monoxide and tar, as well as the ash and smoke, of combustible cigarettes. Norris went from smoking a pack and a half of Marlboro Lights to vaping about 3 milliliters of fluid a day.

"My physician, who I visited after I quit, said, 'if you eliminated the tars and carcinogens in cigarettes, you've won the battle'," he remembered.

Norris' doctor wasn't as happy about his ongoing nicotine addiction but advised him it was still better than continuing to smoke. Since 2013, the Mechanicsburg resident opened three vape shops employing 10 people. He actively proselytizes to the retirees and state office workers who pass by his shop in Harrisburg's Strawberry Square.

Researchers and health officials, however, are split on the question of whether vaping is healthier than smoking.

Earlier this year, the Royal College of Physicians issued a report urging smokers to switch to e-cigarettes as a means to an end. Vaping may give serious addicts their first real chance of quitting, the British medical organization concluded.

Groups like the American Cancer Society and American Lung Association, meanwhile, argued that FDA-approved treatments such as nicotine patches and gums are the only reliably safe avenue to smoking cessation.

Few randomized control trials have been published about the long-term health effects of vaping and much of the existing research was sponsored by stakeholders, including e-cigarette trade groups and Big Pharma, with something to prove.

In May, the FDA announced plans to roll out a strict approval process for vaping products similar to the rules governing the tobacco industry. Manufacturers would have to submit each product for FDA approval and, within two years, every product sold by a vape shop would have to be vetted.

The FDA crackdown was also motivated by the specter of young people taking up vaping as an introduction to nicotine rather than an alternative to cigarettes.

"As cigarette smoking among those under 18 has fallen, the use of other nicotine products, including e-cigarettes, has taken a drastic leap," said Sylvia Burwell, the U.S. health secretary, at the time of the May announcement. "All of this is creating a new generation of Americans who are at risk of addiction."

Until the new rules are fully implemented, the absence of any consistent inspection policy means that the chemical components of liquid nicotine are largely a mystery to the average consumer.

"We don't know what's in those products at this point," said Deborah Brown, CEO for the Camp Hill-based American Lung Association of the Mid-Atlantic. "That's one reason why we feel that the tried and true methods should be used."

But that opinion is far from universal in public health circles, particularly when it comes to low-income smokers.

Mike Wetzel sells e-cigarettes at Blue Door Vaping in Harrisburg's Strawberry Square. A new 40 percent tax approved last week could lead the owner, Dave Norris, to close the store.SEAN SIMMERS

Nicotine gums and patches generally aren't covered by insurance plans. The insistence that those are the only viable options, some health experts argue, ignores the reality that the people who would benefit the most from quitting won't be able to afford to.

"The problem is they're abstinence-only," Godshall said, of the impulse by groups like ACS and ALA to advocate equally against cigarettes, smokeless tobacco and e-cigarettes. "Some groups have a goal to reduce cigarette use. Others want to eliminate all tobacco use. For me, this is all about harm reduction."

'Sorry about the death'

The larger implications of Pennsylvania's new tobacco taxes went virtually unscrutinized last week, but a number of health policy experts say the state made a fatal error by failing to give smokers an inexpensive alternative that would allow them to scale back their nicotine habits.

"It's like, 'Sorry about the death'," said David Sweanor, a University of Ottawa professor who's extensively studied the effect of cigarette taxes. "This is all about tax and not about preventing death."

Sweanor and Warner are part of a growing number of researchers calling for taxes based on the relative health risks of the product. High taxes on cigarettes would give way to lower taxes on cigars and then e-cigarettes and smokeless tobacco, based on the cancer rates associated with each product. That system, Sweanor said, gives smokers a path to quitting, particularly for nicotine addicts who can't quit cold turkey and don't have the money to buy patches or gums.

Pennsylvania's new taxes don't give smokers any alternative, he said. And that's even more troubling given that smoking is more common among people who already face economic or mental health challenges. The nature of the addiction, he said, also means they're likely to devote more of their income to cigarettes. That could ultimately lead to even more health costs and worsening outcomes down the line.

Pennsylvania is counting on the new tobacco tax measures to raise nearly $500 million, including $431 million from the cigarette tax increase, $46 million from smokeless tobacco, $13.3 million from e-cigarettes and $3.1 million from loose tobacco used by smokers who roll their own cigarettes. Like any budget, those estimates are based on projections that may or may not pan out in reality, a fact pointed out by some fiscal hawks during House deliberations last week.

"What if this works out and people stop smoking tobacco?" Rep. Brad Roae, a Crawford County Republican, said.

Roae brought up another issue that could undermine the cigarette tax: so-called "border bleed." That's the phenomena of Pennsylvania residents -- or smugglers -- crossing state lines to circumvent the new taxes.

This was one of the factors blamed when revenues from Philadelphia's $2-per-pack increase failed to live up to projections. Last year, the city brought in $58.8 million versus the originally anticipated $77.5 million. "Border bleed" and black-market tax evasion has also been blamed in other states, such as New York, whose neighbors have much lower cigarette taxes.

Kevin Hensil, a spokesman for the state Department of Revenue, said the impact of higher prices and compliance issues were factored into cigarette tax revenue projections.

E-cigarette taxes account for a relatively small amount of new revenue in the 2016-17 budget, but shop owners and some lawmakers doubt that Pennsylvania can rely on even the paltry $13.3 million sum.

In the days since Wolf signed the budget, vape shops across the state announced closing dates to coincide with when they'll have to cut a check for 40 percent of the value of the inventory currently on their shelves.

"I don't intend on paying them a cent," said Chris Hughes, owner of Fat Cat Vapor Shop in Montoursville.

Hughes, whose Lycoming County shop currently has three employees, said he plans to sell off his inventory and close the store before the end of September. Like many owners, he said, he doesn't have the cash reserves to make a lump-sum payment to the state. Furthermore, competition from online retailers who aren't required to put a 40-percent markup on their products will make it impossible to keep operating in the long-term.

"The state said the imposition of this tax would net ... $13.3 million in revenue," he said, "but the state will lose that money, the $10 million (in sales taxes) the stores are already giving them and throw their employees into unemployment."

Vape shops like the Blue Door, in Harrisburg's Strawberry Square, are considering closing their doors in the wake of new taxes handed down by the state.SEAN SIMMERS

Norris, of the Blue Door, hired a lobbyist last year when the Legislature was first considering a tax on e-cigarettes. Together, they met with lawmakers to pitch a lower tax that the sole proprietors and small businesspeople who dominate the local industry could live with. That recommendation ultimately fell on deaf ears.

"It's not that we're against being taxed," he said, "but we wanted something that would have allowed us to stay alive."

So far, Norris hasn't made a decision about when to close his shops. That they will close, however, is a virtual certainty.

"We have no recourse," he said. "The only way not to comply is to close our business."